26 Aug VA Loan Refinance: Which One’s Right for You?
VA Home Mortgage Refinancing: exemptions from the funding fees
When you refinance your home loan with either the Cash-Out Refinancing or the Interest Rate Reduction Refinance Loan (IRRRL) program, you are required to pay a VA Funding Fee. This fee is levied in order to avoid a taxpayer burden–the funds paid according to the VA funding fee chart 2021 are used to finance the VA mortgage program.
You may choose to pay this fee in full at the closing of the loan or have the fee amount financed in full into your VA Mortgage. You must either pay the fee in full at closing or finance it in full–no partial payments are allowed.
The funding fee can range from 0.5 percent with a VA IRRRL funding fee all the way up to 3.6 percent for a second-time VA loan benefit use with VA Cash-Out refinance program. The amount you pay could be lower than you might expect if you are willing to make a down payment–VA loan rules require a lower funding fee on a VA loan and the fee gets lower if you make a 5% or 10% down payment.
There are some nuances to the funding fee–for example,, if you are refinancing and your first VA Mortgage was for a manufactured home that was not attached to a foundation, your standard or Cash-Out VA loan funding fee is only 1 percent of the financed amount. That is true, technically speaking, but a VA mortgage for such a transaction may be harder to find than other types of VA loans.
How can you become exempt from paying a VA loan funding fee?
There are a handful of situations where a VA Loan borrower who is refinancing their mortgage may qualify to havev a funding fee refund or waiver. Here are the scenarios:
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- If you are receiving VA benefits for a service-connected, VA-rated disability;
- If you are not receiving VA disability benefits but are eligible to receive them;If you are eligible to VA disability benefits but receive military retirement pay instead;
- If you are what the VA describes as a “service member with a proposed or memorandum rating” issued before the loan closing date. You should have VA documentation stating you are eligible to get compensation because of a pre-discharge claim;
- If you are the surviving spouse of a veteran who died in service or from a service-connected disability, or who was totally disabled, and you’re receiving VA Dependency and Indemnity Compensation (DIC), or
What if you receive exemption after closing?
If you have not yet been approved as exempt from paying a funding fee at the time of closing, you may be required to pay the fee and apply for a refund later. Keep in mind that such refunds are NOT automatic. Ask your loan officer how to apply for the VA loan funding fee refund once you have VA documentation showing that you are exempt.
Just to see how beneficial it is for you to attempt to receive exemption from the funding fee, here’s an example of what it might look like: refinance loan amount = $250,000, funding fee of 3.3 percent = $8,250. It’s definitely worth it to go after that refund if you are eligible for the exemption.
If you are eligible, how do you go after your refund?
In the event that you are determined to be exempt from your IRRRL or Cash-Out refinance loan funding fee after the loan has already closed, you will want to apply to for a fee refund with your VA Regional Loan Center,. If you decided to have your funding fee rolled into your loan, the fee will be credited toward your loan. If you opted to pay cash for your funding fee, you will receive a cash refund.